“Multiple avenues of intermediation” (Greenspan 2000) suggest substitutability of
corporate loan and bond finance which smooths external financing flows. Holmstrom and
Tirole (1997) stress complementarity; for most firms bank finance and consequent monitoring
is essential for bond finance. Econometric work based on their model is consistent with
complementarity both on average over time and during financial crises, and for levels and
volatilities. It implies that “multiple avenues” may not be effective as a buffer in a bank credit
crunch, and hence supply-side blockages of bank credit may impact on real activity. There are
important implications for regulation, not least Basel II
